Kotler Chapter 14 Developing Pricing Strategies and Programs

www.donnasia.blogspot.com

DEVELOPING PRICING STRATEGIES AND PROGRAMS

MARKMA

Rhea G. Jardin

May 11, 2012


1. 6 Steps in Setting the Price2. 4 Price-adaptation Strategies

Outline


Price is :- the one element of the marketing mix that

produces revenue

- the amount paid for some goods or services

What is Price?


Concept 1:

6 Steps in Setting the Price

Price objective

Final price

Pricing method Competitors

Demand Costs

Selecting the pricing objective

Determining

demand

Estimating costs

Selecting the

final price

Selecting pricing

method

Analyze competitors’ costs, prices, and offers


Concept 1:

1. Selecting the pricing objective

Price objective


Survival (B/E)

Maximize profit

Maximize market share

Product leadershi

pMaximize market

skimming


Concept 1:

2. Determining Demand

Price objective Demand


Determining

demand

Surveys

Price experimen

ts

Statistical

analysis

Demand elasticit

y


Concept 1:

3. Estimating costs

Price objective Demand Costs


Determining

demand

Estimating costs

Fixed and Variable

Cost per unit of

production

Learning curve


Concept 1:

4. Analyze competitors’ costs, prices and offers

Price objective

Competitors

Demand Costs


Determining

demand

Estimating costs


Evaluate the competitors’

price and product value


Concept 1:

5. Selecting price method

Price objective


Demand Costs


Determining

demand

Estimating costs

Selecting pricing

method


Price markup

Break-even point

Target ROI

Perceived value

Value pricing

Going-rate

pricing Auction-type

pricing


Concept 1:

6. Selecting final price

Price objective

Final price


Demand Costs


Determining

demand

Estimating costs

Selecting the

final price

Selecting pricing

method


High advertisin

g

Pricing policies

Gain & risk

sharing

Price fixing


Concept 1:

6 Steps in Setting the Price

Price objective

Final price


Demand Costs


Determining

demand

Estimating costs

Survival (B/E)

Maximize profit


Product leadershi

pMaximize market

skimmingSelecting

the final price

Selecting pricing

method


Surveys

Price experimen

ts

Statistical

analysis

Demand elasticit

y

Fixed and Variable

Cost per unit of

production

Learning curve

Evaluate the competitors’

price and product value

Price markup

Break-even point

Target ROI

Perceived value

Value pricing

Going-rate

pricing Auction-type

pricing

High advertisin

g

Pricing policies

Gain & risk

sharing

Price fixing


1. Geographical pricing2. Price discounts and allowances3. Promotional pricing4. Differentiated pricing

Concept 2:

4 Price-adaptation strategies


Concept 2:

1. Geographical pricing

Barter

Compensation deal

Buyback arrangement

Payment in products and cash

Direct exchange of goods

Payment in form of products manufactured by the supplied equipment and cash

OffsetReceives payment in cash but agrees to

spend some of the money in the products of that country


Concept 2:

2. Price discounts and allowances

Cash discountDiscounts given to cash,

early or prompt payments

Quantity discountDiscounts given to

those who buy large volumes

Seasonal discount

Discounts given to products or services that are out of

season

Trade discountDiscounts given by

manufacturers to resellers

Allowances

Discounts given to gain reseller participation in

special programs


Concept 2:

3. Promotional pricing

Special-event pricing

Cash rebates

Low-interest financing

Longer payment terms

Warranties and service contracts


Concept 2:

4. Differentiated pricing

Price discrimination - selling a product at two or more prices

Customer-segment pricing- different customer groups pay different prices

for the same product or service

Product-form pricing- different versions of the product are priced differently, but not proportionately to their costs

Image pricing - the same product are priced at two different levels based on image differences


Concept 2:

4. Differentiated pricing

Channel pricing- a product is priced depending on where it was purchase (fine restaurant, fast-food chain, or vending machine)

Location pricing - same product is priced differently at different locations even though the cost is the same

Time pricing- prices are varied by season, day, or hour (weekend vs weekdays, “early bird” customers)


DEVELOPING PRICING STRATEGIES AND PROGRAMS

MARKMA

Rhea G. Jardin

May 11, 2012


DEVELOPING PRICING STRATEGIES

AND PROGRAMS

Shelle CaigaMBA StandardMay 11, 2012


I. Consumer Psychology and PricingII. Steps in Setting PriceIII. Learning what Price Adaptation is all

about.IV. Promotional Pricing TacticsV. Differentiated PricingVI. Increasing PricesVII. Brand Leader Responses To

Competitive Price Cuts

Outline: Developing Pricing Strategies and Programs


How do consumers process & evaluate prices?

process

evaluate

prices


CONSUMER PSYCHOLOGY and PRICING

REFERENCE PRICES

PRICE-QUALITY INFERENCES

PRICE ENDINGS

PRICE CUES


CONSUMER PSYCHOLOGY: provides opportunities to examine issues such as what factors are most important…

when people decide to purchase a particular itemhow customers determine the value of a serviceand whether or not television & magazine advertisements can convince a reluctant consumer to try a new product for the 1st time.

PRICING: is the process of determining what a company will receive in exchange for its products

Definition of Terms:


REFERENCE PRICES…

is a strategy in which a product is sold at a price just below its main competing brand.

is one component of psychological pricing – sellers consider the psychology of prices & not simply the economics.

are prices that buyers carry in their minds and refer to when looking at a given product.


PRICE CUESWhen to use…

Customers purchase item infrequently

Customers are new

Product designs vary over time

Prices vary seasonally

Quality or sizes vary across stores


How should a company set prices for products or

services?STEPS: 1) Select the PRICE OBJECTIVE

2) Determine DEMAND

3) Estimate COSTS

4) Analyze competitor PRICE MIX

5) Select PRICING METHOD

6) Select FINAL PRICE


I. SELECT THE PRICE OBJECTIVE

Survival

Maximum current profit

Maximum market share

Maximum market skimming

Product – quality leadership


II. DETERMINE DEMAND

Price sensitivity

Estimating demand curves

Price elasticity of demand


III. ESTIMATE COSTS

Types of Costs

Accumulated Production

Activity – based Cost Accounting

Target Costing


IV. ANALYZE COMPETITOR PRICE MIX

Identify nearest price competitors

Take competitor’s features and prices into account

Make decision to charge more, the same or less than competitors

Monitor competitors’ reaction to your pricing strategy


V. SELECT PRICING METHOD

Mark up Pricing

Target-return pricing

Perceived-value pricing

Value pricing

Going-rate pricing

Auction-type pricing


VI. SELECT THE FINAL PRICE

Impact of other marketing activities

Company pricing policies

Gain-and-risk sharing pricing

Impact of price on other parties


PRICE-ADAPTATION STRATEGIES

GEOGRAPHICAL PRICING

DISCOUNTS / ALLOWANCES

PROMOTIONAL PRICING

DIFFERENTIATED PRICING



COUNTERTRADE

Barter

Compensation deal

Buyback arrangement

Offset



DISCOUNTS / ALLOWANCES

Cash Discount

Quantity Discount

Functional Discount

Seasonal Discount

Allowance


PROMOTIONAL PRICING TACTICS

Loss-leader pricing



Longer payment terms

Warranties & service contracts

Cash Rebates

Psychological discounting


DIFFERENTIATED PRICING &PRICE DISCRIMINATION

Customer-segment pricing

Product-form pricing

Image pricing

Channel pricing

Location pricing

Time pricing

Yield pricing


INCREASING PRICES

Delayed quotation pricing

Escalator clauses

Unbundling

Reduction of discounts


BRAND LEADER RESPONSES TO COMPETITIVE PRICE CUTS

Maintain price

Maintain price & add value

Reduce price

Increase price & improve quality

Launch a low-price fighter line


DEVELOPING PRICING STRATEGIES

AND PROGRAMS

Shelle CaigaMBA StandardMay 11, 2012


Chapter 14Developing PricingStrategies and Programs

Donna Sia

May 11, 2012


1. Follows six pricing procedures2. Selects a pricing structure that reflects

various situations3. Chooses what price adaptation strategy

to use4. Examine the effect of price changes 5. Responds to competitors price

challenge

OUTLINE:

When setting effective pricing policy a company


Price is the only element in the marketing mix that produces revenue;

the others produce cost.


Consumers use common price references.

Last Price Paid

Fair price

Lower-bound

Typical Price


They may also refer to:

Usual Discounted PriceCompetitor’s Price

Expected Future Price


Companies follow 6 steps when setting prices.

1 Select the price objective

2 Determine demand

3 Estimate costs

4 Analyze competitor price mix

5 Select pricing method

6 Select final price


In selecting price objectives, companies must look at

Survival Maximum current profit

Maximum market share

Maximum market skimmingProduct-quality leadership


Demand can be determined by examining:

Price Elasticity

of Demand

EstimatingDemandCurves

Price Sensitivity


Changes in price affect consumer demand:

Source: Marketing Management, Kotler and Keller, 13th ed.


Customers are likely to be less sensitive to price changes when:

product is more distinctive less aware of substitutes

cannot easily compare the quality of substitutes

expenditure is a smaller part of buyer’s total income



Part of the cost is paid by another party

used with previously purchased assets

small compared to the total cost of the end product



assumed to have high quality and prestige

cannot store the product


Costs can either be fixed or variable

Fixed Cost Variable Cost

process

output


The sum of variable and fixed cost for any given level of production is the total cost


As production accumulates average cost decreases



To arrive at target cost, first

determine target price and desiredfunction

given product’s appeal and competitor’s price

Then: Target Selling Price = $ 9.90 Less Profit Margin = $ 3.40

Target Cost = $ P 6.50


Different pricing methods can be used in varying situations

Markup pricing

Target-return pricing

Perceived-value pricing

Value pricing

Going-rate pricing

Auction-type pricing


Variable cost per unit $10.00Fixed Cost $ 300,000.00Expected Unit Sales 50,000 units

Unit cost= variable cost + fixed cost unit sales= $10.00+ $ 300,000.00

50,000= $16.00

Desired Mark Up= 20%Selling Price= Unit Cost = $16.00 = $20

(1- desired return) (1-0.20)

Markup Pricing is just adding a standard mark-up to the product’s cost.


Target-return pricing is used by companies who need to make a fair return on investment

Desired ROI = 20% or € 200,000

Target-return on price

= unit cost + desired return x investment capitalunit sales

= $16.00 + 0.20 x $1,000,000.00 = $20.00 50,000


Break-even analysis is used to determine target return price and break-even volume



$ 90,000 tractor’s price = competitor’s price

$ 7,000 superior durability

$ 6,000 superior reliability

$ 5,000 superior service

$ 2,000 longer warranty

$ 110,000 superior value

- 10,000 discount

$ 100,000 final price

Perceived Value Pricing


The internet and Auction type pricing:

English auctions

Dutch auctions

Sealed-bid auctions



Geographical Pricing

Price Adaptation Strategy


Discounts and Allowances

Prompt payment discount

Volume discount

Seasonal Discount


Promotional Pricing

Loss-leader Pricing




Profits Before and After a Price Increase



1. Maintaining price

2. Maintaining price and adding value

3. Reducing price

4. Increasing price and improving quality

5. Launching a low-price fighter line

Respond to Low-Cost rival by:


In summary:Price is the only element in the marketing mix that produces revenue

Competitor’s can also offer attractive prices

Price objectives

Deliver value to customers


Survival and Profit

consumer psychologySensitivity to price

changes

Products Cost (Variable/Fixed)

Durability, reliability, excellent service


Chapter 14Developing PricingStrategies and Programs

Donna Sia

May 11, 2012

Kotler Chapter 14 Developing Pricing Strategies and Programs

Technology

Transcript of Kotler Chapter 14 Developing Pricing Strategies and Programs